This blog is devoted exclusively to American jobs and America's labor markets

Monday, March 1, 2010

Skills and Wages

I have heard people say that the director, the general manager, the CEO, or the boss should make more money, have a higher salary, than the people he or she manages. It may not be a universal thought but in America high wages carry prestige, which many agree brings authority.

Economists commonly reject any idea that a wage depends on prestige or confers authority. In the economists tool chest wages depend on productivity. High productivity means high wages and vice versa.

Take doctors where productivity equals important skills that can only be learned over a long period of time: typically 10 years. The years of medical training are a personal investment, not only because Americans pay their medical school tuition and finance their own education, but because the skills belong to the individual and can be transferred between employers.

A personnel investment is different than a personal investment. Personnel investment is training paid for by an employer. Training typically runs for weeks or months with orientation to specific employer needs. Employers are reluctant to pay for long term, general training because the skills and benefits belong to the individual that can be moved to other employers.

In a society where individuals pay for their own post-secondary education wages must reflect the time and money for investment if we expect people to have skills. We don’t want doctors to be paid low wages because they would not have the ability or willingness to make the investment to learn what we want them to learn.

Late last spring I clipped an article where wages do not reflect the skills Americans expect. The caption was “Panel on Fatal Crash Looks at Pilots’ Pay, Commutes.” [Washington Post, May 14, 2009]

The article detailed the efforts of executives at Colgan Air to defend the low pay of their pilots following the worst airline accident in 7 years. The co-pilot, aged 24, earned “about $16,200” and commuted by air from Seattle to Newark, New Jersey to go to work.

Colgan officials justified the low salary and long commute by saying “Pilots are told what the pay scales are. Our pay scales are within the industry standard.”

The Bureau of Labor Statistics reports a median national wage of $111,680 for an occupation titled Airline Pilots, Co-pilots, and Flight Engineers.

There was a time, not too long ago, when airline pilots were almost universally trained by the military at public expense. When pilots left military service to find commercial jobs as pilots, the airlines knew they were hiring thoroughly trained pilots.

The time has passed when airlines can rely on finding applicants trained by the military, but if airlines pay for military style pilot training they know their pilots can leave and go elsewhere. The weak financial incentive for airlines to pay for pilot training puts the burden on individuals who now find it necessary to pay for their own training.

Much of the incentive for individuals depends on the wage they can earn. Going beyond the minimum to be a well trained pilot requires an early investment of time, money and lost wages. A salary of $16,200 will not pay for that investment.

We want pilots to make more the $16,200, but not because we want them to have prestige. We want them to make more because our safety depends on it.